It's Our Money

Flanked by ten members of City Council, Mayor Nutter announced a tentative plan to deal with the “terrible fiscal storm” that threatens to shipwreck city government. The new proposal relies on changes in the city's pension fund and a five-year sales tax. In a major victory for City Council, increasing property taxes has been removed from the budget plan.

Instead of seeking a two-year increase in property taxes, Nutter will try to get state approval for a five-year increase in the sales tax from 7 percent to 8 percent. Combined with changes to the rules governing city's pension fund, the tax increase should prevent any major cuts in city services.

The plan looks very similar to the alternative offered by City Council two weeks ago. However, instead of borrowing against future sales tax revenue, the city will defer a portion of the payments to the pension fund for two years. That will free up about $230 million in revenue. That money, plus interest, will be paid back into the pension fund during the final two years of the plan with revenue from the sales tax.

Although the new budget plan represents a major political breakthrough, Mayor Nutter is not out of the woods yet. The state will have to authorize the sales tax increase and actuarial changes to the city's pension fund. If either is rejected by the state legislature, Nutter will be forced to make drastic budget cuts across city government. His plan also relies on $125 million in savings through contract negotiations with city workers, which is far from guaranteed.